6/25/2009 @ 10:20AM

How Cherry Picking Could Hurt Obama's Health Care Plan

William Vaughan was in St. Petersburg, Fla. this past winter taking care of his ailing father. He noticed the large number of newspaper ads for Medicare HMO plans. The private plans, offered by
Humana
,
UnitedHealth
and others, would hold seminars with free food at restaurants or hotels to pitch senior citizens on the virtues of swapping their government Medicare for the HMO alternative.

Most of the events were in nice parts of Pinellas County. Very few were downtown or in other poor or minority areas. He collected information on 70 events and found that 45 were in affluent zip codes. Vaughan, whose day job is a policy analyst at Consumers Union in Washington, was pretty sure he knew why. “When 50% of the people spend only 3% of health dollars, you’ll stay up all night trying to find that 50%,” Vaughan says. Or, he jokes, “the [Medicare HMO] marketing people in Pinellas County must think low-income people and certain minorities don’t like doughnuts as much as rich people do.”

Insurance companies find ingenious ways to get healthy members in the door while being inconvenient to sickly applicants. That’s bad news for reformers, who imagine an egalitarian world that doesn’t discriminate against the sick. The four health care proposals now getting the most attention in Congress all require HMOs to offer coverage to all who apply, regardless of their health status.

Good luck with that. Insurance companies will have a financial motive to attract and keep the healthiest members, the ones who don’t rack up hospital visits or take costly medications. If Obama Care means HMOs will have to compete with a new public plan, a disproportionate number of unhealthy people will end up in the latter.

Health plans started playing games with Medicare in the early 1990s–when the program started its experiments with privatization, paying a fixed amount to private health insurers for each member they could sign up. HMO companies would hold seminars for prospective new members on the third floor of elevatorless buildings or in places that required a long drive. You could count on only the fittest and most self-sufficient seniors to show up. Others would recruit at a 5k charity run or offer gym memberships as a perk and pat themselves on the back for promoting fitness. Barbells are not of much interest to those who are demented, bedridden or in a wheelchair–all health care gobblers, notes Paul Precht of the Medicare Rights Center.

Insurers would also structure benefits so that sick patients would be deterred or never re-enroll. “If you didn’t want to attract cancer patients you would put in copayments and coinsurances that were less attractive than [regular] Medicare,” says George Rapier, a doctor in San Antonio whose 60-physician practice contracts with Medicare HMOs.

Amerigroup
, a $4.5 billion (revenues) HMO in Virginia Beach, Va., last year paid a $225 million settlement after federal prosecutors alleged that it had defrauded the Illinois state Medicaid plan, which covers poor people. From 1999 to 2003 Amerigroup salesmen pitched Medicaid plans to poor people at Chicago bus stops and health fairs. But the reps were told to avoid enrolling pregnant women.

Easy to see why. Deliveries and neonatal care are expensive, but Amerigroup was being paid by the state at a fixed amount per member it enrolled, regardless of illness or condition. In 1999, 13% of the women of childbearing age in Illinois’ non-HMO Medicaid population gave birth. By 2002 only 6% of the company’s members who fit that profile were giving birth. “Please keep up the good work with the marketing reps of not [sic] trying to sign up pregnant women,” e-mailed one Amerigroup manager to another.

Prentiss Taylor, a physician who worked for the health plan, cleverly noted that its reimbursement rate from the government was highest for babies under the age of 2. So, he wrote, “it may make bottom-line sense for marketing reps to take the info on these pregnant ladies, then follow up to sign up Mom and infant after they deliver.” (Taylor referred questions to Amerigroup.)

At its cherry-picking peak, Amerigroup spent only 48% of Medicaid money on doctors, hospitals and pharmacy bills–the state expected Amerigroup to pay out 85%–while the rest went to overhead and profits.

An Amerigroup spokesman, Kent Jenkins, says that the company was avoiding pregnant women because the state had other programs that suited them better.

“It is very difficult to predict all the different ways that people [insurers] will bend, skirt and break the rules,” says Frederick Cohen, the attorney who represented a whistle-blower in the Amerigroup case.

The mirror image of cherry-picking is “lemon dropping,” designing a plan to encourage sick people to leave. A study of Florida records from 1990 to 1993 found that Medicare HMOs were signing up cheap and healthy patients and losing those who got sick. The study, published in the New England Journal of Medicine, found that new HMO members had spent only 66% of the average cost of Medicare the year before joining the HMO. Those who left to go back to the government plan went on to spend 180% of the average. Another study, by Medicare’s Payment Advisory Commission in 2004, found that Medicare HMOs were designing their plans to avoid paying for kidney dialysis, cancer drugs and radiation.

Medicare has adapted, offering HMOs more money to cover patients with expensive conditions like diabetes or congestive heart failure. As you can see in Florida, that hasn’t ended the monkeyshines.